House of Cards: Why Digital Ally Shares Are Bound to Collapse

President Obama's call last week to outfit 50,000 cops with body cameras has set the companies which make the body cameras on fire. Not the least of which is Digital Ally, whose shares are up nearly 400% in the past 3 months alone, even though the company is more than 22x smaller than its largest competitor. While police body cameras will in time become the new norm, Digital Ally is not positioned to capture this tailwind. This is a quintessential house of cards situation, and I would not be surprised to see this company collapse under the weight of its own financial missteps. Digital Ally isn't just in bad financial health. It's on its metaphorical death bed, propped up by an unmanageable debt load. The company has yet to turn a profit this year, let alone at any point in the last five years. It has been unable to convert recent publicity into sales, and only managed to grow sales 3.7% in its latest quarter. In the same quarter, Digital Ally lost over $6M while its long-term debt swelled 280%. In 2011 the company borrowed $2.5M, which it was initially supposed to pay off by May 2012. It was unable to do so, and has since had to push the payment back three consecutive years. It simply doesn't have the money to pay off its obligations. As Digital Ally keeps kicking this $2.5M can down the road, it is taking on additional debt to pay off its old debt and cover interest payments. It is, in the most classic sense, robbing Peter to Pay Paul. As Taser, Veivu and other large players in the police protection market sweep up deal after deal, Digital Ally has not picked up a new order in nearly a month and a half. Unfortunately time is not on their side, and barring a miraculous turnaround, this company is doomed to collapse under its own weight. Stay away for your own safety.